Why business owners should be wary of reacting to Budget predictions

With the Autumn Budget on 28 October approaching, speculation about what the new chancellor might announce is likely to intensify.

For business owners, this can be particularly difficult to ignore. Changes to Capital Gains Tax (CGT), Business Asset Disposal Relief (BADR), pensions, and other areas of taxation could significantly affect how much you ultimately keep from a business sale or other major business decisions.

As a result, it can be tempting to act before the Budget, while you still know what the rules are. However, there are risks to making an irreversible financial decision based on something that may never happen.

Read on to find out why business owners should be wary of reacting to predictions.

Budget rumours often don’t come to fruition

There have been several recent examples of strong speculation in the run-up to Budgets that did not ultimately result in the anticipated changes.

One example is the tax-free pension lump sum. Under the current rules, most people can take up to 25% of their pension tax-free up to the Lump Sum Allowance (LSA) of £268,275.

Ahead of both the 2024 and 2025 Autumn Budgets, there was considerable speculation that the government could reduce the amount people can take from their pensions tax-free. One widely discussed possibility was reducing the LSA from £268,275 to £100,000.

The speculation prompted some people to take their tax-free cash earlier than they otherwise would have.

Yet the predicted reduction did not happen, and withdrawing money from your pension early can have long-term consequences. For instance, if you hold the money in cash, it may miss out on potential future growth. Even if you invest it, your money may no longer benefit from the same tax-efficient environment it had in a pension.

Another example of a rumour not coming to fruition was in 2020. Ahead of the Spring Budget, there was widespread speculation that Entrepreneurs’ Relief, as BADR was then known, could be abolished altogether. This caused many business owners to rush through sales to help preserve their relief.

However, the government chose not to abolish it and reduced the lifetime limit for qualifying gains from £10 million to £1 million instead. This change affected fewer than 20% of people eligible for the relief, and many of those who rushed their sales may have accepted unfavourable terms.

This highlights the key point that even when a rumour is based on a genuine possibility, the final policy can look very different from the speculation.

Reacting to speculation can be particularly risky for business owners

Making financial decisions based on rumours can be risky for anyone, but business owners may face additional risks.

For example, you may be tempted to rush the sale of your business to benefit from current tax rates before a rumoured tax change comes into effect, as many were in 2020.

But tax is only one part of the equation. Finding the right buyer, securing a fair valuation, and negotiating favourable terms can all have a much greater impact on the eventual outcome.

Rushing a sale because of an unconfirmed change to the tax rules could mean accepting an offer below what your business is worth, entering negotiations before you are ready, or selling at a time that does not fit your wider plans.

The same principle applies if you are considering selling other assets or restructuring your finances in anticipation of a change to CGT.

You might successfully avoid a higher tax rate. But you could also incur costs, lose investment growth, or give up other tax advantages in the process.

So, rather than thinking solely about the tax you could save by rushing a sale, it’s also important to consider the cost of bringing a sale forward.

Waiting until the facts are certain gives you time to plan

If you are already planning an exit and the Budget would only bring your timescale forward by a few weeks or months, it may be appropriate to consider whether acting sooner makes sense. But that decision should be based on the whole picture, rather than tax speculation alone.

There is also no guarantee that a new tax rule will leave you worse off overall.

Governments can introduce transitional arrangements, exemptions, thresholds, and other measures alongside tax changes. The final rules may also provide opportunities to mitigate their impact through careful planning.

Most importantly, good financial planning should be based on your long-term objectives, rather than whichever rumour is attracting the most attention in the weeks before the Budget.

If you own a business, this might mean considering when you actually want to exit, what you need the proceeds of a sale to provide, and what you want to leave behind for your family. It may also mean looking at how your business, investments, and other assets fit together as part of your wider financial plan.

So, before making a decision based on speculation, it is worth stepping back and considering the alternatives. Rather than acting immediately, a financial planner can help you model several scenarios in advance, so you’re ready to respond once the chancellor confirms what will actually change.

To speak to a financial planner, get in touch.

Email [email protected] or call us on 01625 466360.

Please note

This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.